Functions of Technological Innovation Systems

Bergek at al1 propose the following seven functions of Technological Innovation Systems that all need to be ‘performed’ or ‘stimulated’ for successful innovation. Failure in one or more of these functions prevents an innovation system from maturing. We adopt this framework yet reframe the approach in terms of Environmental Innovation Systems in order to account for a shift in the focal point of analysis: instead of a specific technology or ensembles of technologies, we focus on environment-related societal challenges and promising actual or potential responses to them. The 'functions' of Environmental Innovation Systems are as follows:

1. Knowledge development and diffusion: This function concerns inventions, theory and knowledge building but also the diffusion of this knowledge for instance in term of patents. Whereas knowledge development is very much performed by universities and other research institutions, diffusion can also be carried out by e.g. governmental organisations. This function is at the heart of our analysis as it is concerned with the evolution of the knowledge base of the Technological Innovation Systems in focus. We adopt a broad definition of knowledge types, ranging from scientific knowledge, through applied knowledge used in productive processes to that on the functioning of markets and strategies for the governance of fields of technical-administrative knowledge. Equally, the sources of knowledge can be diverse, such as explicit R&D as well as learning from the application of knowledge in production, and imitation. The level and dynamics of the function can be measured by a range of indicators, e.g. bibliometrics, R&D projects, number of professors and patents, and learning curves.

2. Influence on the direction of search: This function concerns providing focus to the knowledge development and diffusion process. An important actor here is government that can define research directions, but also give room to experimentation by business. On the one hand, this function is the combined strength of incentives and pressures for organisations to enter and productively engage with the TIS. On the other hand, it also describes the factors that shape the directionality of searches within the TIS.

Contributing factors can be, i.a.:

Visions, expectations, and beliefs in growth potential based on

Changing factor prices

Growth occurring in other countries’ TIS

Changes in the “landscape”

Development of complementary resources

Path (and thus expertise) dependent perceptions of the relevance of different types and sources of knowledge

Assessment of technological and associated market opportunities

Regulation and policy

Demand from leading customers

Technical bottlenecks

Crises in the current business model or activity

3. Entrepreneurial experimentation: For each innovation, experimentation is needed when scaling up. This holds in particular when the innovation enters the commercial stage. Businesses need to experiment to find the most promising ways of implementing and upscaling an innovation. Entrepreneurial experimentation both increases diversity in an evolutionary sense and reduces uncertainty whether a given technology, application or business model works. Entrepreneurial experimentation can be measured, e.g., by the number of new entrants into a market, demonstration projects or of the different types of an application.

4. Market formation: Market formation describes how well developed a market is. If innovation were to be seen as a linear process, market formation would indicate if an innovation is still in its pre-commercial, in an upscaling or in a fully commercial stage. Creating markets is very much governmentally driven, whereas enterprises have the role of searching for successful niches in the market that has been created. Policy support such as feed-in tariffs or Green Public Procurement can be important for market formation. For the purposes of a quantitatively oriented Scoreboard, indicators such as the percentage of renewable energy can describe the dynamics of market formation from the perspective of what has actually been achieved.

5. Legitimation of technologies: A new technology needs to be considered appropriate and desirable by users, producers, investors, civil society and policy-makers in order to generate demand and support. Firms, civil society organisations and policy-makers seek to generate legitimacy for technologies by emphasising their economic contributions or their sustainability credentials. Or they may seek to undermine it. What can seem to be a viable solution for a certain problem may result in the creation of new problems or a simple shifting of problems in time and space. A crucial role in this function is therefore played by the general public.

6. Resource mobilization: The mobilization of competence by education and employment, financial resources and complementary assets such as complementary products and services and infrastructure2 are important for the development of Technological Innovation Systems. Governments play an important role in resource mobilisation by providing financial means in the pre-commercial stages of an innovation.

7. Development of positive external economies: This function can be seen as the ‘take-off phase’ of an innovation, in which a self-enforcing process starts that leads to upscaling of an innovation. Positive external economies result when different organisations or efforts do not just compete or cooperate with each other but when their joint occurrence creates joint benefits. This function cannot be conceptualized as independent but as a strengthening of the other six: For example, new entrants into a market first reduce uncertainties as they increase the function of entrepreneurial experimentation. This, in turn, increase knowledge development and diffusion (function 1), influences the direction of search (function 2) and strengthens market formation (function 4). These firms also mobilize resources (function 6) and thus increase the pool of qualified labour available. A greater number of firms may also increase investors’ experiences and standards and thus lower transaction costs for financial investments. With more (or bigger) firms or organisations in the market, they generate more employment and can mobilise more resources for advocacy, thus strengthening the legitimation of a technology (function 5), which in turn positively affects resource mobilization, influence on the direction of search, market formation and entrepreneurial experimentation. Due to these causal chains, the strengthening of one function can result in the amplification of the others. Such dynamics can be particularly observed when firms are co-located and ‘clusters'3 emerge (Porter 2000; Cluster Umwelttechnologie NRW 2012).45 Drawing on Marshall, Bergek (2008, 418) suggests three sources of such positive external economies arising from co-location: emergence of pooled labour markets, emergence of specialized intermediate goods and service providers, and information flows and knowledge spill-overs. In the following we don’t present indicators for this function. However, one should keep in mind that the concentration of research and innovation activity in a region or country can lead to the development of positive external economies and potentially to virtuous cycles.

Indeed those functions overlap, they stretch across areas of the innovation systems (e.g. knowledge development and diffusion) and also entail cross-cutting functions. Thus our scoreboard seeks to capture them in a meaningful way without attempting to fill each part of those functions in the most comprehensive manner. This is driven by our attempt to produce a scoreboard that differs from the majority of others not being related to such research underpinnings and be able to yield results while being flexible enough to add indicators whenever a more focussed analysis requires it. We present functions of innovation systems where indicators can partly be shared by different knowledge fields (e.g. environmental research funding can relate to various innovation sub-systems) and are partly more specific to certain knowledge fields (e.g. employment in the renewable energy industry).

In order to promote a TIS it is important to identify those blocking factors that prevent it from further developing its functions and thus structure the selection environment in favour of rival technologies, in particular incumbents. The development of such functions may e.g. be blocked by poorly developed knowledge networks inside the TIS, the dominance of organised incumbent interests that preserve and shape institutions according to their interests (e.g. by keeping fossil fuel subsidies entrenched) or continuing performance improvements in conventional technologies. Once the factors that block the further development of TIS functions are identified, one can better use resources in a targeted way for system-building activities.

Bergek et al suggest three complementary ways for capturing the dynamics of a TIS based on their functional approach: First, by means of longitudinal analysis we can establish the functional patterns of a TIS and how it changes over time. Ideally, dynamics resulting from feedback loops among the functions can be identified, too. Second, system performance can be evaluated in terms of its component functions. Third, the evolution of the functional pattern can be explained by reference to inducement (drivers) and blocking (barriers) mechanisms. Based on this, priorities for policy action can be identified (see Figure 1).

Figure 1: The TIS scheme of analysis (Source: Bergek et al., 2007)

With the Scoreboard, we can capture certain aspects of Environmental Innovation Systems across European Research Area member states according to the approach suggested by Bergek et al: We provide time series data for a number of indicators that can be regarded as expressions of, or proxies for, certain functions. The indicator values can be compared over time and across countries, thus enabling a (limited) evaluation of system performance.